UNIT - V

CENTRAL SALES TAX

Object of the Central Sale Tax (CST) Act : The objects of the Act, as stated in preamble of the CST Act are –

1. To formulate principles for determining (i) when a sale or purchase takes place in the course of inter-state trade or commerce (ii) when a sale or purchase takes place outside a State (iii) when a sale or purchase takes place in the course of imports into or export from India.

2. To provide for levy, collection and distribution of taxes on sales of goods in the course of inter-state trade or commerce.

3. To declare certain goods to be of special importance in Inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on sale or purchase of such goods of special importance (called as declared goods) shall be subject.

Scheme of the CST Act : Basic scheme of the Act is as discussed below –

1. Sales Tax revenue to states : The CST Act provides for levy on inter-state sales and also defines what is ‘Inter-State’ sale. However, the concept that revenue from sales tax should be collected by States has been retained. Thus, though it is called Central Sales Tax Act, the tax collected under the Act in such State is kept by that State only. CST in each state is administered by local sales tax authorities of each State.

2. Tax Collected in the State where movement of goods commences : The scheme of CST Act is that Central Sales Tax is payable in the State from which movement of goods commences (i.e. from which goods are sold). The tax collected is retained by the State in which it is collected. CST Act is administered by Sales Tax authorities of each State. Thus, the State Government Sales Tax officer who collects and assesses local (State) sales tax also collects and assesses Central Sales Tax.

3. Tax on Inter State Sale of goods : CST is tax on inter State sale of goods. Sale is inter-state when (a) sale occasions movement of goods from one State to another or (b) is effected by transfer of documents during their movement from one State to another.

4. State Sales Tax law applicable in many aspects : CST Act makes provisions for very few procedures and rules. In respect of provisions like return, assessment, appeals etc., provisions of General Sales Tax law of the State apply.

5. CST Act defines some concepts : Under the authority of Constitution, the CST Act defines concepts of ‘Sales Outside the State’ and ‘sale during the course of import/export’.

6. Declared Goods : Some goods are declared as goods of special importance and restrictions are placed on power of State Governments to levy tax on such goods.

Appropriate State [Section 2(a)] : In relation to a dealer who has one or more places of business situated in the same State, “appropriate State” means that State in which such business is situated. If, however, dealer has places of business situated in different States, every such State with respect to the place (or places) of business situated within its territory shall be treated as “appropriate State”.

Business [Section 2(aa)] : Business includes the following –

1. any, trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrued from such trade, commerce, manufacture, adventure or concern, and

2. any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.

The following conclusions one can draw from the aforesaid definition of the term “business” –

1. It is not necessary that business should be carried on with a view to earning profits.

2. Adventure being a part of business implies that the element of regularity of transactions need not always be present.

3. Incidental or ancillary transaction are also covered in business, i.e. if a dealer sells old machinery, he will be liable to pay central sales tax on this sale.

4. It is not necessary that the business should be legal.

Crossing the customs frontiers of India [Section 2(ab)] : It means crossing the limits of the area of a custom station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.

“Customs Station” and “Customs authorities” shall have the same meaning as in the Customs Act, 1962.

Customs Station : Section 2(13) of the Customs Act, 1962 defines customs station as any customs port, customs airport or land customs station (customs port shall be for vessels, customs airport for aircrafts and land customs station for trucks and other vehicles). Custom authorities shall specify the customs area within such customs station where imported goods and export goods are to be kept.

Custom Authorities : As per Section 3 of the Customs Act, there shall be the following classes of officers of customs, namely –

1. Principal Collectors of Customs;

2. Collectors of Customs;

3. Collectors of Customs (Appeals);

4. Deputy Collectors of Customs;

5. Assistant Collectors of Customs; and

6. Such other class of officers of customs as may be appointed for the purposes of this Act.

Goods [Section 2(d)] : Sale of “goods” is liable to sales tax. As per Section 2(d), “goods” include all material, articles or commodities and all kinds of movable property. The term does not, however, include newspapers, actionable claims, stocks, shares or securities.

The term “goods” includes all movable property. The word “movable”, as applied to property, is defined as that which may be lifted, carried, drawn, turned, or conveyed, or in any way made to change place or position- Monarch Loundry vs Westbrook 63 S.E. 1070,109 Va. 382. Things are either immovable or movable. ‘Immovable’ includes land and all that is so attached to land as to be legally regarded as a part of it. All other things are movable. Whether a thing is so attached to the land as to be regared as a part of it is determined by the law of the place where the land is. The nature of a “movable” is generally such that its identity is not lost if it moved from one location to another – Bailey vs Kruithoff, La. App. 280 So. 2d 262, 264.

Vide Section 2(7) of Sale of Goods Act, goods includes standing crop, grass and things attached to and forming part of the land, which is agreed to be served before sale or under contract of sale, and consequently, liable to sales tax. In other words, standing crops/trees are generally not goods, if they are sold alongwith land. However, standing timber or crop will be taxable under the CST Act if timber or crop is identified, contract is unconditional and timer or crop is in deliverable state. In such case, it is “movable property” and liable for sales tax.

Newspapers are not goods only for the purpose of the CST Act, i.e., no tax is levied in case of inter-state sale of newspapers.

Dealers are not liable to sales tax on sale of newspapers but if they buy raw material for newspapers at concessional rate, they can do so on submission of Form C.

If old newspaper is sold as newspaper, then it is not taxable. Suppose a Bombay book shop sells an old newspaper (Times of India, Bombay edition) of September 6, 1936 to a researcher in Delhi for Rs. 1,500, it is not chargeable to tax. Conversely, however, if old newspapers are sold as scrap (for instance, sale to a raddiwala of old newspaper @ Rs. 4.50 per kg.) it is chargable to central sales tax, if it is an inter-state sale.

Place of Business [Section 2(dd)] : It is important to know the dealer’s place of business because central sales tax is collected by the Government of that State only where the place of business is situated. The term place of business includes the following –

1. In any case where a dealer carries on business through an agent (by whatever name called), the place of business of such agent;

2. A warehouse, godown or other place where a dealer stores his goods; and

3. A place where a dealer keeps his books of account.

Turnover [Section 2(j)] : It is the aggregate of the sale prices received and receivable by the dealer in respect of sales of any goods in the course of interstate trade or commerce made during any prescribed period. Prescribed period is the period in which sales tax return is filed as per the local sales tax law of the state.

Year [Section 2(k)] : It means the year applicable in relation to a dealer under the general sales tax law of the appropriate state, and where there is no such year applicable, it is the financial year. While the sales tax returns are submitted quarterly/monthly, as the case may be, sales tax assessment is always done for the whole year and the tax payable is calculated accordingly

Definition and Essentials of Sale : Section 2 (g) defines that sale with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and included a transfer of goods on hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation or a charge or pledge on goods.

Essentials of Valid Sale : As per Section 4 of Sales of Goods Act, where under a contract of sale, the property in the goods is transferred from buyer to seller (for a price), the contract is called ‘sale’. Where the transfer of property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement to sale’.

Thus essential element of sales are as given below –

1. There must be transfer of Goods : In state of Tamilnadu vs Sri Srinivasa Sales Corporation (1996 (7) SCALE 421 (SC)] it was held-“In order to constitute a sale under the Sale of Goods Act, it is essential to establish that there is an agreement between the parties for transfer of title to the goods and that such agreement should be supported by money consideration and as a result of the transaction, the goods, article or the property must actually pass to the purchaser. It is settled law that the expression ‘sale’ under the Sale Tax Act has to be understood with reference to the definition of ‘sale of goods’ under the Sale of Goods Act. But, if the title of goods passes without any contract between the parties, express or implied, there is no sale. Similarly, if the consideration of the transfer is not money, but some other valuable consideration, it may amount to exchange or barter but not sale in the strict sense of the law for the purposes of taxation.

Sale of goods is a ‘contract’, hence as per normal provisions of Contract Act, both parties to contract must be competent to contract. A valid mutual consent of both parties is essential for any contract.- Bhopal Sugar Industries Ltd. Vs D.P. Dube (1963) 14 STC 406 (SC). However, in Food Corporation of India vs State of Kerala, AIR 1997 SC 1252 (SC 3 member bench), it was held that levy procurement under Government order is a sale and purchase and hence taxable.

Ascertained Goods : A seller may agree to sell part of his stock of goods. However, unless the part which he intends to sell is segregated, these remain ‘unascertained goods’ and there is no sale. The sale takes place only when goods are segregated i.e. ‘ascertained’ and property is passed on to buyer.

Sale of Illegal Goods : Sale of illegal goods (like hashish, ganja) are also liable to sales tax (like income from illegal business is taxable under Income Tax Act).

2. Transfer of ‘Property’ Essential : There is no sale unless there is ‘transfer of property’. ‘Property’ means a thing over which a person has a domain. This implies transfer of ownership. Mere ‘agreement to sale’ does not mean sales as there is no transfer of property. ‘Property’ is different from ‘possession’. Property can pass even before handing over possession. Conversely, transfer of possession does not necessarily mean that it is a transfer of property.

3. Valuable Consideration Essential : The consideration is something akin to cash payment or deferred payment. Otherwise, it is an exchange and not a sale – Devidas Gopal Krishna vs State of Punjab (1967) 20 STC 430 (SC). Thus, where Kansa finished utensils were transferred for equal weight of raw material in the form of old Kansa utensils plus making charges, it was held as ‘exchange’ and not ‘sale’ –CTO vs Kansari Udyog Sahakari Samiti (1979) 43 STC 176 (MP DB).

It is obvious that free gifts given by Company cannot be taxed as there is no ‘consideration’.

Sales tax is attracted as soon as a sale takes place and payment of such tax becomes statutorily due irrespective of the fact whether they are credit sales or cash sales –ACC vs CTO (1981)48 STC 466 (SC).

In ‘hire purchase’, possession of goods is delivered by ‘owner to hirer on condition of payment of agreed number of instalments. Hirer has option to purchase the goods as per terms of agreement; (usually, a nominal payment is provided at the end of hire period). Property in goods is passed on to the hirer after all terms of agreement are fulfilled. If the hirer does not fulfill the conditions of hire-purchase (e.g. does not pay instalments on due dates) possession of goods can be taken back by owner giving goods on hire purchase. Article 366 (29A) of Constitution has been amended in 1982 to specifically include’ hire purchase’ in definition of ‘sale’. Definition of ‘sale’ as per CST Act also states that ‘sales’ include ‘hire purchase’. Thus, hire purchase is ‘sale’.